Archive for the ‘IT Management’ Category

Outsourcing

September 7, 2009

Does outsourcing works? It’s a question I had to revisit recently because my company is thinking about outsourcing. The main reason is cost and I think that’s the wrong reason to outsource for. And because you start outsourcing for the wrong reasons, it ultimately ends up in a failure.

Most companies look at it as a purely tactical move, although they call it strategic. The attraction is cost. However, because the move is tactical, the integration is also at a very tactical level. Usually the team assigns unattractive tasks like defect fixing or other uninteresting work to the offshore teams. Which ultimately leads to other problems like lack of knowledge, specialization and ultimately productivity (which is labelled as failure, and rightly so). Also, because the work is so un-attractive, it only appeals to mediocre employees, the best ones leave for greener pastures. In the end, it becomes a problem of loyalty.

An important problem is communication and the fact that there’s a bigger disconnect betwen the onshore and offshore (or nearshore) teams. Specs have to be more detailed and knowledge needs to be transferred more formally (which in IT doesn’t work that well – a lot of knowledge is tacit and not necessarily easy to capture in documents and diagrams).
This in the end results in more tech lead and PM time, which is quite expensive. Tech leadership and PM become full time jobs dedicated to the offshore team. If you add the cost of lower productivity to do with poorer communication and disconnection from the business/front office and you add also the travel costs, I’m not sure it’s such a good deal anymore.

Nevertheless, waves and waves of management professionals and consultants will fall for it, because on paper it represents such a good deal. You can boast about cutting cost which is music to the ear for the upper management, especially in recessions. And then they can cash in their bonuses and claim success in the short term, whereas the company (and shareholders ultimately) are left to pick up the pieces.

I’m not against outsourcing though, I’m just against it when it’s done for the wrong reasons. I also think that doing it for the right reasons would also mean doing less of it overall. Just because it’s not a universal panacea.